by Simon Morgan

FRANKFURT, June 5, 2007 (AFP) - Just as leaders of the world's richest nations sit down to a three-day summit on Germany's Baltic coast this week, the ECB is widely expected to raise its key interest rates to their highest levels in five and a half years, analysts said.

The European Central Bank usually holds its rate-setting meetings on the first Thursday of each month but has brought forward this month's meeting to Wednesday owing to a public holiday in many parts of the euro area on Thursday.

Wednesday also sees the start of a June 6-8 summit of the so-called Group of Eight or G8, a club of the world's eight wealthiest countries in the plush seaside resort of Heiligendamm.

Shielded by a razor-wire fence, world leaders will debate a long list of different topics, ranging from aid to Africa to global warming. But a whole range of economic and financial issues are also up for discussion, including the outlook for the global economy.

In a poll of 30 economists by AFP and Thomson Financial News, all experts predicted that the ECB will raise its benchmark "refi" refinancing rate to 4.00 percent from 3.75 percent this week.

If the rate hike is forthcoming, it will be the eighth such move since December 2005 and will bring the refi rate to its highest level since September 2001.

At the bank's last monthly meeting in Dublin in May, ECB chief Jean-Claude Trichet left little doubt that monetary conditions in the 13 countries that share the euro were set to become tighter.

The Frenchman insisted that "strong vigilance" was required with regard to inflationary risks in the eurozone economy.

The term "strong vigilance" is understood by financial markets as Trichet's codeword for signalling an imminent rise in rates.

While area-wide inflation remains below the ECB's ceiling of 2.0 percent, Trichet has warned of upward price pressures in the medium term as wage deals come out higher than gains in productivity. And such dangers could increase as the economic upturn continues and employment levels rise, the ECB chief believes.

Last week, a survey published by the EU Commission in Brussels found that confidence in the European economy was the strongest in six years in May, despite the prospect of higher interest rates, firm oil prices and the euro's current strength.

And in a recent report, the Paris-based Organisation for Economic Cooperation and Development (OECD) predicted that the single currency area would run up growth of 2.7 percent this year, outpacing anticipated expansion of the US economy for the first time since 2001.

The OECD also warned that higher interest rates might be needed to keep inflation down.

With a rate increase this week considered almost a done deal, the markets will be listening for clues as to whether the cycle of monetary tightening will continue in the coming months, analysts said.

Out of the 30 economists polled by AFP and Thomson Financial, 20 said they expected the ECB to raise rates again to 4.25 percent in September.

Bundesbank President Axel Weber, who sits on the ECB's governing council, left no doubt recently that further rate hikes were indeed on the cards.

"The current cycle of interest rate hikes has not reached its end," Weber told the Financial Times in interview.

"What is pretty clear at the moment is that we are in a stronger than previously expected recovery. If necessary we will also have to move into a territory that is portrayed as being restrictive, if that is needed to control inflation," Weber said.

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